Why Canada’s Economy Needs More Innovation and Competition

According to the Commissioner of Competition, Canada’s economy is evolving, and with this evolution comes an increased need for innovation and competition.

Due to global market turbulence in 2025 triggered by U.S. tariffs and inflationary pressures, Canada’s economy has endured what experts call a ‘reset year.’ The economy is marked by a softening labor market, cautious investment, slowing growth, and slower population growth. In response, the government has implemented policies to foster economic growth.

 

Canada’s Economic Performance in 2025

The economy is experiencing modest growth thanks to slower inflation, increased infrastructural investments, interest rate cuts, and the expected U.S. trade deal. Yet, there are still headwinds, primarily due to the US tariffs and high underlying core inflation. With the modest GDP growth projection of 1.25% in January now revised downwards, the Canadian dollar has struggled chiefly against the US dollar, based on data from the forex trading app.

The Bank of Canada has managed inflation well this year, keeping it around its 2% target, and recently lowering the interest rate to 2.5% for the first cut since March. Labor market reports indicate gains in healthcare and agricultural jobs, but the income gap remains at a record high. The economic uncertainty has not helped matters, as business investment remains hesitant.

Despite these issues, the economy has shown resilience and even signs of staging a comeback in 2026. Canada is diversifying its markets to build a more robust economy better equipped to navigate global headwinds. These discussions were central at the Canada Competition Summit 2025 in Ottawa, Ontario. Matthew Boswell, the Commissioner of Competition, emphasized the importance of competition and innovation in driving economic growth.

Highlights From the Commissioner’s Speech

At the event, Boswell reflected on competition as a foundational pillar of the agency’s policy. He highlighted three key reasons why competition will unlock Canada’s economy:

• Competition is a catalyst for productivity and innovation
• Competition is driving affordability and consumer choice
• Competition strengthens Canada’s global position.

Boswell argued that competition is not a disadvantage or limitation to the Canadian economy, but, when managed well, is a “launchpad” for stronger domestic firms. He also highlighted three paths Canada can take to modernize competition laws. These are:

• Breakdown of internal barriers
• Expansion of international trade opportunities
• Regulatory frameworks that promote competition.

Boswell ended his speech by calling Canadians to “turn ideas into action” to build a better economy.

How Increased Competition Impacts the Economy

With a GDP of $2.28 trillion, Canada is the world’s 9th-largest economy. Real estate, manufacturing, financial services, healthcare and social assistance, and mining contribute the most to the overall GDP. The nation’s provinces have localized industries that are crucial to economic growth. In Alberta, for instance, the economy is strongly influenced by oil and gas production, whereas agriculture and mining are the economic engines of Saskatchewan.

Across the country, Canadian firms are exploring emerging trends in technology, AI, clean energy, and e-mobility as they seek new opportunities. In 2025, the economy is expected to become more diversified, with improved trading infrastructure and a reduced reliance on the US market. The country is working to connect Canadian firms to international markets and develop trade flows beyond the US.

This is why Boswell’s call for increased competition in both domestic and global markets is warranted. Canada needs to create a strong and resilient environment where local firms can compete healthily and refine their products and services to compete at the highest global levels.

Many countries are diversifying their markets to reduce reliance on the US following the widespread tariffs that shook markets in the first half of the year. This increases global competitiveness, especially in the services sector.

Increased Competition Drives Innovation

Competition is a powerful catalyst for innovation in Canada, where firms are driven to enhance productivity and improve their product offerings. With a threat to market share and profit margins, Canadian firms must innovate to meet evolving and more demanding consumer expectations, including lower prices and higher quality.

These innovations enable domestic firms to meet international standards and adopt technologies that enhance productivity. The Canadian financial sector is an excellent example, where fintech startups rapidly adopt open banking and AI-based technologies.

To stay competitive, incumbent Canadian banks, such as the Royal Bank of Canada (RBC), have established their own venture capital arms and innovation labs to accelerate the rollout of innovative services. They have also partnered with or acquired fintech firms, assimilating their customer base.

In tourism, companies like Hopper use AI and predictive analytics to forecast future flight and hotel prices. This innovative approach helps consumers find lower prices, enabling them to compete with global travel companies.

Growth-Focused Competitive Policy

Due to the pressures on the nation’s economic foundations, Boswell’s focus on Canada’s growth-focused competitive policy is timely. Where internal trade barriers and regulations stifle competition, growth becomes a distant wish. Although Canada ranks highly (in third position) in terms of ease of business, it has several regulatory regimes that discourage competition and hinder growth.

However, by removing these barriers, including licensing challenges and excessive fees, firms can rise to meet global challenges and scale their operations. It is time for growth-focused competitive policies that allow companies to thrive. Such policies must come from the top, driven by data and feedback from consumers (who are also affected) and the companies servicing them. 

The Road Ahead for Canadian Trade Policy

As Canada and the US negotiate new trade deals, the former will consider internal adjustments to provide Canadian firms with the best possible support. As challenges in supply chain disruption increase, the government must recognize that competition is not a choice but a core necessity for businesses to become more efficient and effective.